What Are EuVECA Funds?

European Venture Capital Funds, commonly referred to as EuVECA, were introduced under Regulation (EU) No 345/2013 (as amended) to create a harmonised framework for venture capital funds across the European Union. A EuVECA fund qualifies as an alternative investment fund (AIF) and is designed to channel capital into SMEs and other eligible early-stage or growth-oriented businesses. These companies are typically unlisted and exhibit strong potential for expansion. The regime was established to foster innovation, support entrepreneurship and facilitate the growth of SMEs within the EU. It achieves this by simplifying access to venture capital financing and granting funds an EU-wide marketing passport, enabling cross-border distribution throughout member states.

Who Can Invest?

EuVECA funds are not intended for the general retail public. They are aimed at professional investors, qualified investors and high-net-worth individuals who understand and accept the inherent risks associated with venture capital investments. Retail investors may participate only under strict conditions: they must commit a minimum of €100,000 and provide a written statement confirming their awareness of the risks involved. There is also an exemption for executives, directors, or employees of the EuVECA manager when investing in a fund managed by their own organisation. In essence, EuVECA funds are reserved for those with the experience or financial strength to bear significant risk.

Eligible Investments

EuVECA funds are subject to clear rules on what they may invest in, known as “qualifying investments.” These include equity or quasi-equity instruments issued by qualifying companies, loans provided to such companies where the fund already holds qualifying equity, and shares acquired from existing shareholders, allowing for secondary transactions. Funds may also invest in other EuVECA funds, though this is capped at 10 per cent to avoid excessive layering. To qualify as a portfolio company, the business must generally be unlisted, meet the EU definition of an SME, and not operate as a financial institution or investment fund. Companies outside the EU must comply with specific tax and jurisdictional standards, including FATF requirements. At least 70 per cent of the fund’s capital must be allocated to qualifying investments, while no more than 30 per cent may be directed to non-qualifying assets. Importantly, leverage is prohibited at the fund level, meaning borrowing or derivatives cannot be used to increase exposure beyond committed capital.

Structure and Requirements in Luxembourg

Luxembourg, as a leading European fund domicile, offers a favourable environment for EuVECA funds. A EuVECA fund must be classified as an AIF under the AIFMD. Its manager, referred to as the EuVECA Manager, may operate as a registered (sub-threshold) AIFM, subject to lighter regulatory obligations, or as a fully authorised AIFM. Sub-threshold managers are not required to appoint a depositary, which simplifies the structure. There is, however, a minimum own-funds requirement: typically €50,000 in initial capital, supplemented by additional funds equal to one-eighth of the manager’s fixed overheads, with further requirements for larger portfolios. The EuVECA label confers an EU passport, allowing funds domiciled in Luxembourg to be marketed across the Union under a harmonised regime. Supervision and compliance fall under the CSSF when the manager is Luxembourg-registered. This framework provides a flexible yet regulated option for venture capital and growth equity funds targeting SMEs and unlisted companies.

Why EuVECA Matters

EuVECA plays a vital role in channelling capital from professional and institutional investors into early-stage and growth businesses, supporting innovation, job creation, and competitiveness within the EU. For fund managers, it offers a streamlined regulatory regime and the ability to market across Member States without the administrative burden of full AIFMD compliance. For investors, it provides structured access to venture capital-style investments under a clear regulatory framework.

Key Considerations

While EuVECA presents significant opportunities, it is not without limitations. Investments in early-stage or unlisted SMEs carry substantial risk, including illiquidity and long-time horizons. Funds are often closed-ended and exits may depend on trade sales or IPOs. Diversification is constrained by the requirement that 70 per cent of capital be invested in qualifying assets, which ties performance closely to a concentrated portfolio. Although regulatory obligations are lighter than some regimes, managers must still comply with AIFMD and EuVECA requirements relating to governance, reporting, and capital adequacy.

In Practice

EuVECA is particularly suited to fund managers seeking to establish European venture capital or growth equity funds with a pan-European marketing passport, and to professional or high-net-worth investors willing to commit significant capital and accept higher risk for potential long-term returns. It also benefits SMEs and growth companies seeking structured financing from institutional-style funds, offering governance, strategic support, and long-term commitment.

For more information, please reach out to Philip Murphy, Director of Fund Services.